What Woodland owners should know about forest carbon offsets in the U.S. South

A new issue brief, released today by the World Resources Institute and the Pacific Forest Trust, looks at the economic opportunities for southern landowners created by emerging forest carbon offset markets. This new revenue stream can offer real rewards to landowners who steward their forests for climate benefits.

Original economic analysis done by the authors suggests that under current market conditions (offset prices in the $8-$12/metric ton CO2e range), income from carbon offsets may be sufficient in some instances to pay property taxes or the “incremental” costs of sustainable forest management certification. From a purely financial perspective, however, revenue from offsets in today’s still-developing market is not likely sufficient to outcompete real estate development in the region.

However, the authors found that if carbon prices exceed $20-25/metric ton of CO2e, the value of emissions reductions from forests begins to look like an attractive part of an investment portfolio that could include timber harvesting in addition to carbon sequestration. Further, if prices exceed $30/metric ton of CO2e , they start to compete with current timber values for mixed hardwood in some locales in the South. Projections for average offset prices under the California cap and trade system (see below) are in $30 range for the period of 2013 to 2020 .

This issue brief is an introductory resource for southern woodland owners, nongovernmental organizations active in the region, offset project developers, and other forest carbon offset market stakeholders. It provides essential information to help understand the key issues and opportunities associated with tapping into forest carbon offset markets in the U.S. South.

What is the current economic viability of forest carbon offset projects?

Forest carbon offset projects have the potential to be economically viable depending on a variety of factors. These projects incur a number of costs, including project development expenses, transaction costs, and opportunity costs (of selling to development, for example). The revenue side of the equation is a function of the market price for offsets and the expected number of offsets the project will likely yield. The latter can differ depending on forest type, accounting methodology, project size, and a variety of factors, depending on the project type.

The authors analyzed an existing project in Virginia to find out, given a certain price of a metric ton of CO2e, how many carbon credits and how much net profit could be generated from a 2,400 acre property.

In the scenario, the landowner harvests fewer forest products annually (40 percent less) than the amount of wood grown on the parcel for a specific period—allowing them to accrue more carbon over a 100-year period (Figure 1). The landowner then receives credit for not harvesting a portion of the carbon stored in the growing forest that could otherwise be legally cut and harvested. This “40 percent harvest” scenario would earn an undiscounted profit from carbon offsets alone of $1.29 million over a 100-year period. If the undiscounted cash flow was spread out evenly over a 100-year time period, this would result in an average of $5.38 per acre per year, not counting the revenue from timber harvesting. This scenario includes costs of inventory, verification, transaction fees, and a modest pricing assumption of $8.50 per metric ton of CO2e rising to $12 per metric ton of CO2e after 12 years.

Forest carbon offset standards applicable to southern landowners

Programs with forest carbon offset standards that are legally applicable to projects in the southern U.S. include:

Woodland owners should enter these markets with realistic expectations. Forest carbon offsets—and the voluntary and compliance markets for them—are still relatively new and offset prices, for the most part, remain low. Project development for carbon offset projects also takes time and upfront resources. Therefore, economic returns to woodland owners will be modest per acre at least in the near term. As a result, anticipated revenues from forest carbon offsets by themselves are unlikely to be as large as profits that can be gained from selling off forests for residential or commercial development.

But this conclusion should not dampen interest. For instance, returns will likely improve if forest carbon offset demand and carbon prices in either voluntary or compliance markets were to increase, as is currently projected for the California market. Likewise, for some woodland owners, even a small new revenue stream is sufficient to cover property taxes, sustainable forest certification costs, or other incremental expenses associated with forest ownership and improved forest management. Furthermore, as documented in other issue briefs that have been recently published, other types of incentives are available for southern woodland owners that could help them maintain their forests.

Although forest carbon offsets by themselves are not a complete solution to needs and challenges of conserving southern forests, they do provide yet another option in the portfolio of approaches that can be utilized to sustain the critically important ecosystem services provided by these forests for the benefit of millions of people.

More information about forest carbon offset prices, trading volumes, and other developments in both voluntary and regulatory carbon markets from online and published resources are provided by the Ecosystem Marketplace and the World Bank.

Related news

Despite continuing concern about the fate of iconic rainforests, new research shows that the world’s forests have stored away an extra 4 billion tonnes of carbon in the last dozen years and the total amount of woodland has increased worldwide since 2003.
The encouraging news comes from Australian scientists, who report in Nature Climate Change that they used a new technique to analyse 20 years of satellite data, to estimate the overall pattern of growth in global vegetation.
The fate of the forests could...

Managing urban green spaces to ensure that they have a good mix of tree species, including some older and larger trees, can enhance species diversity of woodland birds, a new study has shown. The study, carried out in Prague, Czech Republic, also showed that the presence of water bodies increased the number of species of woodland birds.
Urban green spaces provide numerous important ecosystem services. Not only can they enhance human health and well-being and alleviate city heat waves, they also provide habitat...

Ash dieback in the UK is likely to lead to the extinction or decline of over 50 species which are reliant on or highly associated with this tree, including mosses, lichens and beetles, a new study suggests. The researchers recommend that the ash trees are not felled but left to die naturally and in time replaced with mixtures of species such as beech and sycamore which support similar woodland species.
The fungus Hymenoscyphus pseudoalbidus, which causes ash dieback, originates in Asia but has been spreading...

The Woodland-Davis Clean Water Agency (WDCWA) hosted a groundbreaking event on April 10 to observe the start of construction on the new regional surface water treatment plant, expected to open in fall 2016. The project will replace deteriorating groundwater supplies with safe, more reliable surface water supplies from the Sacramento River.
WDCWA awarded CH2M HILL, a global full service consulting, design, construction, and operations firm, a $141 million contract for the design, construction, and long-term...

New diseases are posing significant risks to tree health and plant biosecurity.UK Government Research Councils, DEFRA, Forestry Commission and Scottish Government, are together investing £7M to fund seven new projects to help address threats to UK forests, woods and trees.Bangor University is a partner in one of these projects in collaboration with the Universities of Stirling and Cambridge and the Forest Research agency. The project titled “Modelling economic impact and strategies to increase resilienc...

Customer comments

No comments were found for What Woodland owners should know about forest carbon offsets in the U.S. South. Be the first to comment!